At a recent analyst briefing, Berjaya Sports Toto’s (BST) management remained positive on its company outlook, guiding that its Malaysian lottery business is gaining market share from the illegals, due to the recent crackdown on the illegals by the government. However, we remain sceptical on the sustainability of its growth, as we are concerned that the government’s enforcement efforts may not be able to sustain at a similar intensity. Hence, we reiterate SELL and keep our TP unchanged at RM2.10.

Malaysian Toto – Taking Market Share From the Illegals

Management believes that there is room for improvement from the recent quarter, as the government continues in its effort in curbing illegal NFOs. Based on our observations, there has been a hike in enforcement activity but we are sceptical about a sustained recovery, as we are concern whether the government can sustain a similar level of enforcement intensity. We also believe that future enforcement would be more challenging, as illegal operators are moving their operation online from physical establishment. Some punters still prefer the illegals due to their higher payouts.

Philippines Leasing – Winner Takes All

Management guided that the Philippines Charity Sweepstake Office (PCSO) has initiated a fresh tender for the leasing of lottery equipment, and Berjaya Philippines (BP) will be submitting a bid. Unlike previously, the new contract is for the supply for the whole Philippines instead of just the Luzon region. Their current leasing contract is expected to be completed by this year, and we believe that the new pricing is likely to be lower than the current one, assuming they win the bid. Results of the bid will likely to be known by end of the year.

Reiterate SELL Call With An Unchanged TP of RM2.10

As we are not convinced that the government efforts are sustainable, we remain skeptical about BST recent recovery in its Malaysia Toto operation. As such, we are keeping our DDM-based TP unchanged at RM2.10, and our SELL call unchanged. Key upside risks to our call: enhanced enforcement activity on illegal betting operators, and an increase in the number of draw days.

Source: Affin Hwang Research - 5 Jul 2019